One keyword that has been gaining ground on a Google search I use is “Monkeypox.” If you look at the news, you get headlines like Georgia children diagnosed with monkeypox, according to health officials or, Monkeypox in Michigan – State’s total cases rises to 143.
This current outbreak is the largest ever in the U.S. and globally, and marks the first time substantial local transmission has been reported in non-endemic countries across multiple continents.
I don’t think we’re looking at a situation similar to covid-19, but I’m still looking at the different companies involved in helping with the outbreak. In particular, which companies can assist in testing and early detection.
There are a few, but I have one in mind for today’s trade idea. More on that in a second.
Let’s take a look at the sector performance list. Do you see how Healthcare is at the bottom of the performance chart over the past month but is climbing up to the middle over the last week and near the top of the list for the 1-day performance? That is showing a rotation into Healthcare in the shorter time frames and could give us an opportunity for a bullish play in that sector.
Today’s trade idea is in the specialty Healthcare industry.
XLV is the ticker for the S&P 500 Healthcare sector ETF and over the past year, you can see that it’s been trading in a bit of range from $127 to $134. Of course, there were times when it traded above and below, but the majority of the price action occurs between those levels as shown in the chart below.
If we add in the 5-period RSI (relative strength indicator), you can see that the RSI is at 30 or below every time XLV bounces off the support line and moves higher (orange vertical lines).
With the RSI below 30 already and the XLV heading into the support line, I believe we will see XLV find support at $127 or above and head higher from here.
That brings us to our stock idea, Quest Diagnostics (DGX). Quest now offers a test to detect the monkeypox virus DNA, delivering faster answers for patients. The Quest test can differentiate monkeypox viral DNA from other non-variola orthopoxviruses in a specimen, helping to enable a faster final diagnosis.
Quest was involved in the covid pandemic, providing testing solutions, and is continuing to increase its retail relationships, with approximately half of its COVID-19 volume now coming from retailers. In addition to CVS and Walmart locations, Quest is now collecting specimens at Rite Aid drugstores too.
Quest has grown earnings-per-share and revenue over the last five years. These are the charts I like to see with rising EPS year-over-year.
Now, let’s look at the chart. DGX has been trading in a range since February and is nearing its support line. With the Healthcare sector ready to bounce and DGX also at the lower part of its range, I see DGX heading higher over the next few weeks.
If an October long call is too expensive, you can use one of my favorite strategies and use a put credit spread. This is done by selling a put and simultaneously buying a lower put for protection.
A 21 OCT 22 $125/120 PUT credit spread is giving traders $147 for every $353 at risk. You will get to keep your entire $147 as long as DGX stays above $125 by October 21, 2022.
You can time your entry by waiting for a close above the previous day’s high to make sure DGX is bouncing off of support.
If you have any questions, comments, or anything we can help with, reach us at any time.
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